cber.cba.ua.edu
alabama.business
Center for Business and Economic Research, Culverhouse College of Commerce, The University of Alabama
Volume 75, Number 4
Economic Outlook:
4th Quarter 2006
United States
Review. The U.S. economy grew by
4.1 percent in the first half of 2006.
However, the economy is showing very
visible signs of slowing down. In the
second quarter of 2006 the rate of
growth was only 2.6 percent, primarily
due to slowing housing markets and
high energy costs. The second quarter
also saw the first decline in business
spending in 13 quarters. Business
spending decreased by 1.6 percent;
the first drop since the first quarter of
2003. Slower growth in the second
quarter also reflected a downturn in
consumer spending on both durable
and nondurable goods and a deceleration in exports. After a flat showing in
August, industrial output declined by
0.6 percent in September, reflecting
weakness in demand for both automobiles and housing. Lower demand led
most manufacturers to cut production.
Consumer spending, which accounts
for almost two-thirds of the economy,
increased by only 2.6 percent in the
second quarter. Expenditures on durable
goods declined by 0.1 percent in the
second quarter, following a 19.8 percent
gain seen in first quarter. Weakness in
housing markets also resulted in a
decline in spending on household
furniture and household equipment.
Additionally, the second quarter saw a
sharp decline in sales of light trucks.
Spending on nondurable goods also
dropped sharply in the second quarter.
Not surprisingly, spending on fuel oil
and coal increased by almost 53 percent,
and expenditures for gasoline and oil
increased by approximately 69 percent.
These cost hikes are among the major
Fourth Quarter 2006
factors behind retrenchment in
consumer spending on other
items and services.
Business spending on equipment
and software declined by 1.4
percent in the second quarter of
2006. Expenditures made by
firms on communications related
equipment really took a hit in
the second quarter, experiencing
a decline of almost 26 percent.
Expenditures made by firms on
transportation equipment
declined by almost 23 percent.
Spending on transportation
equipment is an anomaly since
it also includes spending on
aircraft, which is a highly volatile
category. A decline in business
spending on some of these items
was offset by an increase in
spending on industrial
equipment.
6
5
Gross Domestic Product
Annual Percent Change
Over Same Quarter Previous Year
4
3
2
1
0
Q1 Q1 Q1 Q1 Q1 Q1 Q1
2000 2001 2002 2003 2004 2005 2006
Source: U.S. Department of Commerce, Global Insight, and Center for
Business and Economic Research, The University of Alabama.
6
5
Consumer Expenditures
Annual Percent Change
Over Same Quarter Previous Year
4
3
2
Employment growth has also
slowed down significantly, with
1
both manufacturers and retailers
0
continuing to shed jobs. In the
Q1 Q1 Q1 Q1 Q1 Q1 Q1
first quarter of 2006, an average
2000 2001 2002 2003 2004 2005 2006
Source: U.S. Department of Commerce, Global Insight, and Center for
of 175,000 jobs was being added
Business and Economic Research, The University of Alabama.
each month. In September only
51,000 new jobs were added,
most of which were in sectors
that pay relatively low wages, like
food services, hospitality and tourism
related services, and administrative
Economic Outlook:
support services. Moreover, service
4th Quarter 2006
1
providing industries, which have been
the main engine of new job creation,
Business Leaders
are also showing signs of economic
Confidence Index:
slowdown. Service providing
4th Quarter 2006
5
businesses expanded at the slowest
pace in more than three years in
Alabama Business Wins
September. The Institute for Supply
Management’s index of nonmanuPublication Award
9
facturing businesses fell to 52.9 in
September from 57.0 in August, the
A career marked by
lowest reading since April 2003.
In this issue:
singular events
10
dropped to 32 from its
August value of 37. All
these index readings are
at their lowest levels
since 1991. Home
construction had its
biggest decline since the
second quarter of 1995.
Furthermore, the median
price of single family
homes fell to $217,000
from $240,000 a year
ago. This was the largest
year-over-year decline
since 1970.
Housing markets are also showing signs
of weakness in demand. In the second
quarter, housing prices rose at their
lowest rate since the fourth quarter of
1999. To some extent housing markets
and prices have been propped up by
adjustable rate mortgages and speculation, with consumers increasingly
financing their spending with home
equity loans and larger mortgages based
on adjustable interest rates. Now that
interest rates are beginning to creep up,
these mortgage rates have to be
adjusted, further putting pressure on
household budgets. In the next 18 to
20 months, almost $1 trillion worth of
mortgages will be adjusted upward to
reflect market interest rates.
With gains in wages not keeping up
with the appreciation in housing prices,
we expect a significant decline in home
sales, particularly in the areas of the
country that saw substantial increases
in home prices and speculation activity.
As of August 2006, sales of new homes
had already declined to around 1.05
million from their August 2005 level of
around 1.27 million. Also, the drop in
the homebuilder’s housing market index
from August 2005 to August 2006 was
the biggest twelve-month decline ever.
The index fell from 33 in August to 30 in
September, its eighth consecutive drop.
A value below 50 indicates that the
majority of home builders consider
housing market conditions to be poor.
A measure of sales expectations for the
next six months fell to 37 from 41 in
August, while the index of current sales
2
Alabama Business
Considering the
retrenchment in the
economy, the Federal
Reserve Bank has left its benchmark
short-term rate unchanged at 5.25 percent, reasoning that a slowing economy
and the Fed’s two-year campaign to
raise rates might be enough to dampen
inflationary pressures. The lowering of
oil prices at this stage of the economic
cycle has also been a big help to the Fed
in achieving its objectives. Indeed, the
inflation rate has slowed considerably.
The data for October will show a third
consecutive drop in both consumer and
wholesale prices, mainly because of a
decline in oil prices. Nationally, the
average retail gasoline price was $2.36
a gallon in mid-October, compared with
just over $3 at the start of August.
Gasoline price declines have given
consumers higher disposable incomes
to spend on other goods and services.
Outlook. At this
stage of the cycle,
the U.S. economy
is in no danger of
going into a full
fledged recession.
Instead, it is poised
to grow at a modest
rate at least for the
next three or four
quarters. A slowdown in employment growth,
together with a
slowdown in
housing markets,
will have a definite
impact on consumer
purchasing behavior.
The easing of oil prices will offset some
negatives by putting more money in
consumers’ pockets. Although housing
markets are expected to remain in a
slump for the near future, the decline in
energy prices will significantly reduce the
risk that the economy will plunge into
recession. Third quarter GDP growth is
now expected to be around 1.7 percent.
If oil prices continue to fall, the economy should grow by 2.6 percent in
the fourth quarter.
Consumer spending is now estimated
to grow by 3.0 percent and 3.3 percent
in the third and fourth quarters, respectively. Nevertheless, consumer spending
on durable goods is still forecasted to
decline by 1.2 percent in the fourth
quarter. A lack of any real wage gains is
expected to keep downward pressure on
consumer spending. Despite some
weakness seen in the second quarter,
business spending should begin to pick
back up in the third and fourth quarters.
Spending by private firms should
increase by almost 10 percent in the
third quarter and by slightly over 11
percent in the fourth quarter. Spending
on computers and peripherals should
increase by 23 percent in the third
quarter and by 24 percent in the fourth
quarter. Most employment gains are
expected to be in service providing
businesses. The majority of these jobs
will be in healthcare related services,
professional and business services, and
the leisure and hospitality sector, mainly
in food services.
The unemployment rate is expected to
increase from 4.7 percent in September
to 4.8 percent by year end. Imports are
forecasted to decline by 3.0 percent and
exports by 5.5 percent in the fourth
quarter, resulting in an increase in the
U.S. current account deficit of almost
$863 billion by year end.
Overall prices are expected to increase
by 2.8 percent in the third quarter, but
could possibly decline by 1.0 percent in
the fourth quarter. Despite a decrease in
oil prices, the rate of inflation still
remains rather high, at around 2.5
percent. That is slightly above the Fed’s
target rate of 1 to 2 percent. The Fed
will probably resume lowering the Funds
rate by March of 2007.
Alabama
Employment. During the twelve month
period ending in September 2006, the
state added 26,000 new jobs. Almost
77 percent, or 19,900, of these jobs
were added in the state’s eleven
metropolitan areas comprised of 28
counties. The remaining 39 counties
added 6,100 jobs. The BirminghamHoover metropolitan area led the state
by adding 5,700 jobs, followed by the
Mobile (5,300), Huntsville (4,900), and
Montgomery (1,700) metropolitan areas.
Most of the jobs added in the Birmingham metro area were in administrative,
support and waste management services
(1,300); food services and drinking
places (1,500); and healthcare and social
assistance (1,300). In the Huntsville
metro area, the industry group that
added the most employees to its
payrolls was professional, scientific
and technical services (1,100).
The manufacturing sector in Alabama,
primarily industries producing durable
goods, continues to surprise on the
upside. From September 2005 to
September 2006, durable goods
industries added 4,300 new jobs, most
of which were in transportation equipment manufacturing (3,200). This group
includes both motor vehicle and aerospace products and parts manufacturing.
Firms producing computer and electronic
products added 1,100 jobs. Wood products manufacturing gained 700 jobs.
Alabama Business
3
Alabama Nonagricultural Employment
Change in Number of Jobs
September 2005 to
September 2006
Total Nonagricultural
Natural Resources and Mining
Construction
Manufacturing
Durable Goods Manufacturing
Wood Products Manufacturing
Primary and Fabricated Metal Manufacturing
Machinery Manufacturing
Computers and Electronic Products Manufacturing
Electrical Equipment, Appliance, and Component Manufacturing
Transportation Equipment Manufacturing
Motor Vehicle Manufacturing
Furniture and Related Products
Nondurable Goods Manufacturing
Food Manufacturing
Textile Mills
Textile Product Mills
Apparel Manufacturing
Paper Manufacturing
Plastics and Rubber Product Manufacturing
Trade, Transportation, and Utilities
Wholesale Trade
Retail Trade
Transportation, Warehousing, and Utilities
Information
Telecommunications
Financial Activity
Professional and Business Services
Educational and Health Services
Leisure and Hospitality
Other Services
Government
Federal Government
State Government
State Education
Local Government
26,000
400
2,900
800
4,300
900
-700
-200
1,100
200
3,200
700
-300
-3,500
600
-700
-1,100
-1,700
200
-100
2,100
1,200
0
900
-200
-200
100
5,800
5,000
4,000
600
4,500
400
1,100
700
3,000
Source: Alabama Department of Industrial Relations.
Industries producing nondurable goods,
on the other hand, lost 3,500 jobs.
During the twelve month period ending
in September 2006, almost all these
firms in Alabama experienced payroll
declines. Other than the 600 jobs
added by food processing plants
and about 200 added in paper manufacturing, every other nondurable
industry category lost jobs. The
majority of these job losses were in
textiles and apparel, which together
shed 3,500 workers from their payrolls.
Overall, the state’s manufacturing sector
experienced a net gain of 800 jobs.
During the twelve month period ending
4
Alabama Business
in September 2006, mining gained 400
jobs while the construction sector added
2,900, primarily in building construction
(1,500).
Service providing firms in the state
continue to add new jobs. Altogether,
from September 2005 to September
2006, these firms added 21,900 to
their payrolls, primarily in leisure and
hospitality services (4,000); education
and health services (5,000); and
professional and business services
(5,800). High energy prices during the
middle of the year had a significant
effect on consumer spending, causing
payrolls in retailing to remain flat.
Within firms that provide professional
and business services, most of the jobs
added were in administrative and
support roles (4,700). Most of the
healthcare related jobs were in ambulatory healthcare services (3,200) and
social assistance (1,800). Within leisure
and hospitality services, most of the
new jobs were at food services and
drinking places (3,100).
The government sector in the state
added 4,500 jobs during the twelve
month period ending in September
2006. The increase was primarily
within local governments (3,000).
Tax Receipts. Alabama experienced
remarkable growth in tax revenues
during fiscal year 2005-2006. For the
fiscal year ending in September 2006,
state tax revenues grew by 9.8 percent,
or approximately $749 million, over the
previous fiscal year, totaling over $8.4
billion. Sales tax revenues rose 6.7
percent to about $1.9 billion, almost
$162 million higher than the previous
fiscal year. Corporate income tax
receipts totaled over $528 million, an
increase of nearly 23.5 percent or $101
million. Individual income tax revenues
grew 8.9 percent to approximately $3.2
billion, about $265 million higher than
the previous fiscal year. Appropriations
made to the Alabama Education Trust
Fund increased about $527 million to
approximately $5.5 billion, an increase
of 10.6 percent. Appropriations made
to the state’s General Fund rose
approximately $192 million, an increase
of 13.7 percent, and totaled about $1.6
billion.
Outlook. After remarkable growth
in the first half of the year, the state’s
economy is expected to slow down
somewhat for the remainder of 2006.
Despite a decline in energy prices,
consumers are expected to remain
cautious in the near future. The rate of
job growth has been slowing in recent
months and will continue to do so for
the rest of the year. However, the
state’s transportation equipment related
industries, including both motor vehicle
(article continues on page 9)
Fourth Quarter 2006 • Volume 5, Number 4
Since the third quarter of 2005, panelists have been more
optimistic about prospects for the Alabama economy than for
the U.S. economy. This trend continued on the fourth quarter
survey and the gap between the two outlooks widened to 8.1
points. Expectations for the state’s economy remain the largest
positive contributor to the index. Continuing weakness in the
national economy seems to have translated into dampened
expectations across Alabama industries in the fourth quarter.
Industry component indexes, including outlooks for sales, profits,
hiring, and capital expenditures, dropped close to 6 or 7 points
from their third quarter 2006 values, indicating that the slowdown
will extend to all facets of business activity.
National Economic Outlook
Q4 2006 compared to Q3 2006
50
41.4
Percent
40
27.1
30
28.8
20
10
2.0
0.7
0
Much
Worse
Somewhat Remain Somewhat
Worse the Same Better
Much
Better
THE OUTLOOK
Alabama
BLCI
100
National Economy
51.1
Alabama Economy
59.2
Industry Sales
56.0
Industry Profits
53.6
Industry Hiring
51.7
80
Index
Cautiously Optimistic Outlook Completes Five Years of
Survey Business leaders registered their opinions for the
fourth quarter 2006 Alabama Business Leaders Confidence
Index® (BLCI) during September, marking the 20th quarter and
5th complete year of the survey. The BLCI of 54.2, down 4.7
points from the third quarter reading, signals a slowing pace of
expansion. While the six component indexes remain in positive
territory, they all declined during the quarter.
60 54.0
59.3 61.4 58.9
54.2
40
Capital Expenditures 53.6
20
BLCI
0
Q4
Q1 Q2 Q3 Q4
2005
2006
54.2
Index above 50 indicates expansion.
increase from previous quarter
decrease from previous quarter
Slow Growth for U.S. Economy Alabama business leaders correctly
anticipated the weakening of the U.S. economy in the third quarter,
knocking 6 points off the component index on the third quarter survey.
Second quarter 2006 GDP growth is now estimated at 2.6 percent
and forecasters expect third quarter growth could come in just under
2 percent. Looking to the fourth quarter, BLCI panelists expect the
national economy to experience slow growth—the component index
of 51.1 is down 2 points from last quarter, but is still above the neutral
point. Fifty marks the division between improving and deteriorating
conditions. Consumer spending could be helped by lower energy prices,
which also reduce the risk of inflation. However, spending on residential
construction is expected to continue to contract. The opinions of
Alabama panelists are tilted slightly toward an improving national
economy—30.8 percent expect better performance, while 27.8 percent
think the U.S. economy will worsen during the fourth quarter.
Alabama Economic Outlook
Q4 2006 compared to Q3 2006
50
42.1
41.8
40
Percent
Strength of Alabama Economy Lifts Index The Alabama economy
continues to lead the six component indexes, coming in at 59.2 for the
fourth quarter of 2006. Both the state’s labor force and employment are
growing at a faster pace than the nation’s, with unemployment well below
the national rate. Just 12.3 percent of panelists think economic
conditions in Alabama could worsen during the fourth quarter, while
45.6 percent forecast improvement. Ongoing projects, recent industry
announcements, and the upcoming BRAC transfers all support this
confidence. Although the pace of job growth has slowed in 2006
compared to 2005, jobs continue to be added, particularly in construction,
durable manufacturing (including motor vehicles and aerospace), and
services. Total tax receipts were up 9.8 percent for the fiscal year ending
September 30, 2006 compared to the previous fiscal year, with corporate
income taxes rising 23.5 percent and individual income and sales taxes
9.0 percent.
30
20
12.3
10
0
3.8
0.0
Much
Worse
Somewhat Remain Somewhat Much
Worse the Same Better
Better
Center for Business and Economic Research, The University of Alabama
Percent
31.2
26.0
20
10
3.8
2.0
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
Industry Capital Expenditures
Q4 2006 compared to Q3 2006
49.0
50
40
Percent
20
0
28.8
30
20
16.4
10
2.4
3.8
1.0
Labor Costs May Be Cutting into Profits The profits component index
slipped to 53.6 in the fourth quarter of 2006—its lowest reading for the year
and 5.9 points below the third quarter index. At 40.8 percent, the share of
Alabama business leaders expecting profits to rise is the lowest in five
years of survey history. While commodity price increases are moderating,
rising unit labor costs, slowing productivity gains, and weaker sales could
factor into lower profits. Nationally, corporate profits from current
production rose just 0.3 percent in the second quarter after an increase of
14.8 percent in the first. Alabama’s low unemployment rate and a shortage
of skilled labor confirmed by BLCI panelists on a mid-summer survey
suggest that firms may have to raise wages to attract and retain qualified
employees. Profit forecasts are lowest in manufacturing and wholesale
trade this quarter.
Industry Hiring Plans
Job Growth Slowing While Alabama should continue to add jobs in the
fourth quarter of 2006, the pace of hiring is likely to slow. The hiring plans
component index comes in at 51.7 this quarter, still in positive territory, but
down 5.9 points from the third quarter reading. The differential of 7.1 points
between the 27 percent of respondents forecasting an increase in hiring in
their industry and the 19.9 percent expecting a decline is the smallest in
four years. With relatively few sizeable new projects and expansions
coming online in 2006 compared to the number of automotive-related jobs,
in particular, created in 2005, the pace of job growth in the state has slowed
significantly. About 22,100 nonagricultural jobs were created between
January and August 2006 compared to 45,800 during the same period of
2005. Hiring plans for the fourth quarter are most robust in professional,
scientific, and technical services and in construction. Two-thirds of
manufacturing firms surveyed expect to hold hiring at its third quarter level.
2
24.3
10
3.4
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
Q4 2006 compared to Q3 2006
53.1
50
40
Percent
37.0
30
28.1
30
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
Q4 2006 compared to Q3 2006
40
0
42.8
40
Industry Profits
50
0
Industry Sales
Q4 2006 compared to Q3 2006
50
Percent
Businesses Concerned about Consumer Spending Weakened
sales expectations in finance, insurance, and real estate (FIRE) and
in manufacturing contributed to a decline of 6.2 points in the sales
component index for the fourth quarter of 2006 compared to the third
quarter. At 56.0 the index still points to overall sales gains, but at the
slowest pace of the last five years. While 46.6 percent of BLCI panelists
expect sales in their industry to increase during the quarter, 25.3 percent
forecast a decrease. In particular, manufacturing respondents are more
likely to feel that sales will decrease. Alabama’s housing market, spared
the high rates of price appreciation seen in much of the nation, is expected
to remain relatively stable, although a growing supply of homes for sale
could affect construction activity. While energy prices have eased
somewhat, the lagging effect of higher prices on consumers’ finances
could hurt spending.
30
24.3
20
16.8
10
3.1
0
2.7
No
Strong Moderate
Moderate Strong
Decrease Decrease Change Increase Increase
Capital Expenditures Likely to Moderate Capital spending should
continue to help propel growth in the Alabama economy in the fourth
quarter of 2006, but at a more moderate rate than that seen in the third
quarter. The 32.2 percent of panelists forecasting increased investment by
their industry this quarter is down from 47.5 percent last quarter and the
capital expenditures component index is down 6.8 points to 53.6. While the
higher cost of capital factors into investment plans, in Alabama the drop-off
may also reflect the completion of a number of large industrial and
commercial projects and a lull before work begins on newly-announced
projects, including capital investment that will result from the BRAC moves
to the Huntsville metro area. For the fourth quarter, transportation,
information, and public utilities (TIPU) and other services are expected to
see the largest increases in capital spending.
Center for Business and Economic Research, The University of Alabama
Do you enter into strategic alliances?
Strategic Alliances Leverage Capabilities In today’s globally
competitive environment, firms are increasingly looking to the
synergies created by collaboration. Studies show that firms with high
revenue growth more frequently engage in strategic alliances. Fortyfive percent of fourth quarter 2006 BLCI panelists report that their
businesses enter into alliances (including joint ventures and
partnerships), while an additional 13.4 percent are exploring the
possibility. More than 70 percent of panelists’ companies in
transportation and warehousing and in information industries currently
engage in alliances and over half of firms surveyed in professional,
scientific, and technical services utilize such arrangements.
Yes: 45.0%
No, but exploring:
13.4%
No: 41.6%
For what reason(s) do you enter into an alliance?*
Enter new markets/
expand customer base
Extend expertise or
competencies
Extend product lines/
services
Alliances Expand Horizons Over 64 percent of
Alabama business leaders who replied that their
company currently has or is considering alliances cite
entering new markets and/or expanding their customer
base as a reason. Most firms indicate multiple
objectives, with many looking to collaborative
agreements with other companies to help them extend
their products, services, and competencies. Offsetting
costs is a slightly less common factor. Other reasons
noted include spreading risk, enhancing compliance,
and providing volume discounting opportunities to
customers.
64.1
48.5
44.3
Meet client demand for new
products/services/functions
41.9
Offset costs
38.9
Other
3.0
0
10 20
30
40 50
60
70 80
Percent
How are your alliances typically constructed?*
Mutual Benefit Important to Healthy Alliances
Constructing an alliance requires identifying goals and
expectations and crafting a deal that is fair to both sides.
Revenue sharing in proportion to each party’s ownership
interest in the alliance is an effective structure since
maximizing profit benefits both interests fairly. About 58
percent of Alabama panelists currently involved in or
considering an alliance use a revenue sharing agreement.
A flat fee percentage is employed in 32.5 percent of alliances,
while more than 26 percent are based on per project fees.
Several panelists reported creating alliances in joint venture
with a nonprofit organization or in a public-private partnership.
What percentage of your overall revenues do
strategic alliances represent?
1 to 9 percent: 53.4%
0 percent: 2.3%
Don’t know: 1.5%
Greater than 40 percent: 8.4%
30 to 39 percent: 3.8%
10 to 19 percent: 25.2%
58.1
Revenue sharing
Flat fee percentage
32.5
26.2
Project fee basis
Equity swap
7.5
Other
6.2
0
10
20 30 40 50
Percent
60
70
Revenue Growth Measure of Success The contribution of
an alliance to a firm’s revenues is an indicator that can be
monitored and compared to goals established for the alliance.
Studies show that ultimately most alliances disappoint with
higher costs or lower revenues than expected. Over half of
survey panelists in firms currently in strategic alliances report
that the alliance(s) represent between 1 and 9 percent of their
overall revenues. But a fourth realize a 10 to 19 percent share
of revenues from alliances, and 17.5 percent attribute 20
percent or more of their firm’s revenues to alliances.
20 to 29 percent: 5.3%
* Panelists could choose multiple responses.
Center for Business and Economic Research, The University of Alabama
3
What controls do you have in place to
protect your company’s interests?*
Alliances Introduce Risk Involvement with strategic partners
can leave a company open to risks in one or more of four broad
areas: strategic, operations, reporting, and compliance.
Effective management and control is essential to an effective
alliance. And it is important to devise an exit strategy. Alabama
businesses have put in place a variety of controls to protect their
interests. While monthly or quarterly assessments are most often
used, measurement against contracted benchmarks is almost as
common. More than 27 percent of respondents have a 30-day
walk-away policy, while almost as many rely on open book
review.
Monthly/quarterly assessments
37.6
Contracted benchmarks
34.2
30-day walk-away
27.5
Open book review
26.2
2.7
Other
* Panelists could choose multiple responses.
0
10
20 30
Percent
40
50
Component Index by Area, Q4 2006
Q4 2006
Alabama
Change from Q3
Birmingham
MSA
Huntsville
Mobile
Montgomery
National Economy
51.1
-2.0
48.4
52.9
55.1
50.6
Alabama Economy
59.2
-1.7
55.8
65.4
64.8
57.3
Industry Sales
56.0
-6.2
56.5
60.6
59.2
54.9
Industry Profits
53.6
-5.9
53.7
57.7
60.7
48.2
Industry Hiring
51.7
-5.9
48.4
55.8
58.2
48.8
Capital Expenditures
53.6
-6.8
52.6
53.8
58.2
51.8
BLCI
54.2
-4.7
52.5
57.7
59.4
51.9
Alabama Metros Divided Although indexes for the state’s
largest metro areas all forecast growth in the fourth quarter of
2006, the four divide equally into slow and moderate growth
pairs. In the slow growth group, panelists in Birmingham and
Montgomery are both anticipating a contraction in hiring during
A Look into the BLCI With the fourth quarter 2006 results in,
the Alabama BLCI marks five years of survey history. Many
thanks to the panelists who have been with us since the
survey’s inception and to those who have joined along the way.
We welcome back former panelists and encourage new
panelists to register and voice their opinions. Hearing from a
wide range of firms representing small, midsize, and large
businesses across industry sectors and across the state is
essential to providing a useful forecast.
Your comments on the survey and the newsletter are always
valuable. We also encourage suggestions for topical questions
the quarter. Panelists in Huntsville and Mobile are more upbeat,
registering positive expectations on every component index.
Current and anticipated development is boosting the outlook
for these areas.
that you would like to have business leaders across Alabama
weigh in on. Questions or comments can be emailed to:
[email protected].
Almost 300 panelists completed the fourth quarter 2006 survey.
We hope to have your input and the input of your peers on the
first quarter 2007 survey during December. And special thanks
to the many panelists who responded to the Quick Poll this
summer. A PowerPoint presentation on the top issues facing
Alabama and Alabama companies in 2006 is available at:
http://cber.cba.ua.edu.
Analysis provided by Carolyn Trent, Socioeconomic Analyst,
Center for Business and Economic Research, The University of Alabama.
The BLCI is a
Compass on Business
initiative created in
collaboration with:
For more details on the Alabama Business Leaders Confidence Index®, visit www.blci.com/alabama.
For more details on the Center for Business and Economic Research, visit cber.cba.ua.edu.
(continued from page 4)
Mark your calendars!
manufacturing and aerospace products and parts
manufacturing, will continue to add to their payrolls well
into 2007. With the new Kia automotive plant just across
the state line in Georgia, it is probable that most of
Hyundai’s tier one and tier two suppliers will expand and
add workers to supply parts for both Hyundai and Kia. As
long as consumers remain cautious, retailing payrolls will
decline slightly or at the best remain flat. Corporate profits
will continue to be healthy, providing a boon for business
investment in equipment and software.
Although the housing sector’s recessionary conditions in
other parts of the country have not been a major problem
in this state, falling housing prices will probably have a
significant impact in the Birmingham and Mobile metro areas,
where appreciation in home prices was much larger than in
the rest of the state. Residential construction is forecasted
to decelerate even further in the coming months. The state’s
economy is forecasted to grow by approximately 3 percent
in the fourth quarter. For the year as a whole, the state’s
economic growth is estimated to be in the 3.1 to 3.3
percent range.
Ahmad Ijaz
[email protected]
Alabama Business
Wins Publication
Award
The Association for University Business
and Economic Research (AUBER) has
named Alabama Business the winner
of the 2006 Publications Award for
Newsletters, Brochures, and Other
Promotional Materials.
The newsletter was redesigned earlier
this year by Sherry Lang, senior graphic
designer at CBER. This newsletter is a
team effort and the staff members who
regularly help with the writing, editing,
and production of the newsletter are
Alabama Business is a quarterly publication of
the Center for Business and Economic Research,
Culverhouse College of Commerce, The
University of Alabama. Articles reflect the
opinions of the authors, but not necessarily
those of the staff of the Center, the faculty of
2007 Economic Outlook
Conference
JANUARY 2007
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The University of Alabama’s Center for Business and
Economic Research will hold its annual Economic
Outlook Conference on Tuesday, January 23, 2007 in
Montgomery, Alabama. Space is limited, so reserve
your spot today!
For more information:
Phone: 205.348.6191
Fax: 205.348.2951
Email: [email protected]
http://cber.cba.ua.edu
Carolyn Trent, Ahmad Ijaz, Deborah
Hamilton, and Annette Watters.
“This is a significant accomplishment,”
said J. Barry Mason, dean of the
Culverhouse College of Commerce,
which houses CBER. “It underscores
the importance of clear and consistent
communication in this day and age,
and it certainly demonstrates why the
state’s business community considers
Alabama Business a powerful
management and decision making
tool.”
AUBER is the professional association
of business and economic research
organizations in public and private
universities. Dr. Carl Ferguson, director
the Culverhouse College of Commerce, or the
administrative officials of The University of
Alabama.
All correspondence should be addressed to:
Editor, Alabama Business, Center for Business
of the Center for Business and
Economic Research and associate dean
for research and technology, said, “We
are fortunate to have a professional
such as Sherry on our team. Our
communication with the business
community is vital.”
CBER’s Alabama Economic Outlook, an
annual short-term forecast for the
state’s economy, has won the AUBER
Publications Award for Economic
Outlooks four times, in 1987, 1998,
2001, and 2005. In addition, CBER’s
website was named the “Outstanding
Website of the Year” by AUBER in
2003.
and Economic Research, Box 870221,
Tuscaloosa, Alabama 35487-0221.
Copies of this publication as well as other socioeconomic data resources are available on the
Center website: http://cber.cba.ua.edu
Alabama Business
9
A career marked by
singular events
Ferguson recalls his 30
years at UA
Like every career, Carl Ferguson’s 30
years at The University of Alabama have
been marked by many singular events.
The first was that following graduation
with a Ph.D. from the University of
Missouri in 1974, his employment
search included only one site visit—
to The University of Alabama.
“I was so struck by the energy and
enthusiasm of Dr. J. Barry Mason, then
Chairman of the Department of Management and Marketing, and all of the
departmental colleagues, that I could
not imagine a more inviting place or
one better suited to my professional
skills and interests,” Ferguson said.
Interestingly, Ferguson not only spent
his entire career at UA but he worked
for Mason the entire time. “To Dean
Mason, my mentor and friend, I would
like to say thank you—it has been a
most amazing journey.”
Ferguson will retire as associate dean for
research and technology, professor of
marketing, and director of the Center for
Business and Economic Research (CBER),
at the end of the year. He has been a
voice for education reform, work force
development, and the go-to spokesman
on the state’s economy.
“Almost immediately after accepting
UA’s offer of employment as an assistant
professor of marketing, Dr. Mason asked
if I would be interested in working in
the Center for Business and Economic
Research,” Ferguson recalled. “By 1975
the Center had a storied history. Its
founding director, Dr. H. H. Chapman,
had been a national leader in the development of regional income measurement
and an active player in the establishment of what is today the U. S. Department of Commerce, Bureau of Economic
Analysis. Not only was I being given
the opportunity to work with some of
the best and brightest of my marketing
peers, now I was being offered the
10
Alabama Business
1970s
1980s
opportunity to work in a center with a
national reputation for excellence. It
was an inspiring beginning.”
ment of the Alabama State Data Center,
exceptionally large computer-based data
holdings.
Ferguson said he spent his first five years
at UA learning about the economy of
Alabama, its people, and its history. “It
didn’t take long for my family and me to
realize that we had a new home of
which we could be proud and we felt
very much a part,” Ferguson said.
Another singular event in his career,
Ferguson said, was Dr. David Mathews’
return as president of UA in 1977
following a following a leave of absence
to serve as President Gerald Ford’s
Secretary of Health, Education, and
Welfare. “Dr. Mathews understood the
need to model and track the economic
and demographic changes underway in
Alabama. CBER, working with Dr. David
Cheng, a Yale-trained College of Commerce economist, appealed to Dr.
Mathews to fund the development of
the first econometric model of our state.
Dr. Mathews approved the request and
remained an enthusiastic supporter of
the Center until his departure in 1981
to become President of the Kettering
Foundation,” Ferguson said.
In addition to the traditional course
work in statistics common to most
business doctoral programs, Ferguson’s
committee at the University of Missouri
allowed him to use computer science as
his language. Formal training and an
aptitude for programming and computing technology have served him
well over the course of his career.
“Like many students of my era, all of
my training was on IBM mainframe
computers,” Ferguson said. “In 1975
The University of Alabama was using a
UNIVAC mainframe. This led to many
interesting opportunities and challenges.
I remember there were remarkably few
basic applications available. Working
with staff, the first two applications we
developed were an address management
system to replace an old addressograph
machine and a departmental accounting
package fondly referred to as DASY to
maintain timely information on account
balances.”
Driven by an affinity for the role of the
computer and a staff willing to take on
and master rapidly evolving technologies, CBER had one of the first networks on campus—an IBM Token Ring;
in-house and later worldwide email
over ARPANET; word processing with
Jacquard J500s; computer graphics
using Tecktronics Computer Graphics
terminals; and following the establish-
State econometric models depend on
forecasts of national economic conditions. According to Ferguson, at that
time one of the best sources of such
forecasts was Wharton Econometric
Forecasting Associates (WEFA).
Founded by Dr. Lawrence Klein (recent
Nobel laureate and Professor of Economics at the University of Pennsylvania, Wharton School), WEFA provided
essential detailed forecasts of national
economic activity by sector. “While
attending a WEFA conference in
Chicago, I discussed with Dr. Klein the
work we were doing at Alabama and
invited him to come and visit. He
agreed,” Ferguson recalled.
During the course of several meetings,
Ferguson and Klein discussed the
challenges of developing simultaneous
solutions for the Alabama econometric
model. The UNIVAC in use at the
time could not support most of the
to facilitate and advance the use of
Department of Commerce data,
particularly census data, in support
of business and economic development. The concurrent establishment
of the Alabama State Data Center
and the Alabama Econometric Model
worked to solidify CBER as a preeminent data and analytical center for
the state.
1990s
now
econometric applications commonly
used during that period. “After a
moment of thought, Klein recalled
that the Institute for Advanced Studies
in Vienna, Austria was also using a
UNIVAC mainframe and that they were
developing econometric software to
support their efforts,” Ferguson said.
“Before Dr. Klein left campus that day, I
had spoken to Klaus Plasser, the senior
program analyst at the Institute, and
learned that they did indeed have an
application called the Interactive Analysis System (IAS) for the management
and estimation of simultaneous equation
econometric models. Klaus put a distribution tape in the mail the next day and
within two weeks we were up and
running. Our relationship with the
Institute grew over the next several
years. Klaus visited us in Alabama;
CBER helped distribute IAS to other
UNIVAC users across the United States;
and Klaus and Dr. Klein introduced us to
Project Link—a joint WEFA and United
Nations project to tie together national
models to create a comprehensive world
model.”
Working with graduate students, Dr.
Cheng and the CBER staff built what
became the Alabama Regional Economic
Information System; learned about the
strengths and weaknesses of national
and state level data; and, most
importantly, began to develop a much
deeper understanding of the Alabama
economy and its people.
In 1978, coincident with the development of the Alabama econometric
model, CBER was designated by
Governor Wallace as one of the nation’s
first U. S. Census Bureau’s state data
centers. State data centers were
subsequently established in all states
The Center’s state and regional
modeling efforts quickly led to a close
working relationship with the Alabama
Development Office and the newly
created Office of State Planning and
Federal Programs, the forerunner of
today’s Department of Economic and
Community Affairs. Working under
contract, CBER produced Alabama’s first
Economic Outlook in 1980. The Alabama
Economic Outlook and the Regional
Economic Information System are two of
the Center’s hallmark products today.
Another significant career event
occurred in 1981 when Mason suggested
that Ferguson look at a new book by
Richard Baggozi titled Causal Models in
Marketing. Mason thought Ferguson
might find the rigor of the methodology
on structural equation modeling (SEM)
and its application to marketing research
appealing. Although many statisticians
contributed to the study of path models
and the early conceptualization of the
SEM methodology, Dr. Karl Jöreskog of
the University of Uppsala (Sweden) is
widely credited with the seminal work to
fully conceptualize structural equation
modeling with latent variables and the
development of the LISREL software that
empowered this truly revolutionary
research methodology.
After reading Baggozi’s book, Ferguson
was convinced that structural equation
modeling with latent variables would
have a great impact on marketing
research. Ferguson attended a workshop
Jöreskog was conducting in Washington,
D.C. and invited Jöreskog to the University to interact with UA faculty and
graduate students and later to conduct
forums for marketing scholars from
around the country.
occasions, conducting workshops on
LISREL and exploratory factor analysis.
Jöreskog was so impressed with the
early implementation of the mainframe
LISREL application at the University, he
ask CBER and Ferguson to help him
distribute LISREL in the U.S. market.
Jöreskog was also generous with his
time and intellectual guidance in support
of C&BA graduate students. “Over a
career every professor, if they are fortunate, will have a few doctoral students
who study and excel far beyond the
teacher,” Ferguson said. “I was fortunate to have had two.” Jöreskog agreed
to serve on their dissertation committees and ultimately coauthored seminal
journal articles with each. “To Karl and
these fine young men—now great
professors in their own right—I am
most grateful.”
Recent years have seen Ferguson’s role
expand to include responsibilities for the
computing and network technology
across the College. CBER continues to
be recognized for its Economic Outlook
and its regional economic impact
studies; the continuing work of the State
Data Center; and the new work of the
Entrepreneurial Research Network, an
initiative to stimulate entrepreneurship
across rural Alabama.
“Our current partnership with Compass
Bancshares, Inc. is one of which we are
particularly proud. Working with representatives from Compass, Center staff
and our Compass partners developed the
Compass Business Leaders Confidence
Index® which is a quarterly measure of
economic expectations. The Compass
BLCI® is recognized as a leading indicator of state and national economic
conditions,” Ferguson said.
“I am blessed with an exceptional family,
circle of friends, and colleagues. I offer
my heartfelt thanks for all they have
done over the years. It has been a most
amazing journey.”
Carl Ferguson
[email protected]
Over the course of the next several
years, Jöreskog visited UA on numerous
Alabama Business
11
cber.cba.ua.edu
alabama.business
The Center for
Business and
Economic Research
gratefully
acknowledges
the financial
support of
Compass Bank.
Perspective Is Everything
The Alabama Business Leaders Confidence Index® (BLCI) is an
excellent—and quick—way to help business leaders like you stay
ahead of the curve and make informed decisions. The BLCI is
compiled from a quarterly online survey completed by business
leaders across Alabama, which enables you to tap into a valuable
resource of emerging business trends.
Please log on at www.blci.com/alabama/ and register to
become a BLCI panelist. It only takes a few minutes and you
will be notified by email when the next survey opens on
December 1st.
With increased participation from business leaders like you, the
BLCI will become a more valuable planning tool for the Alabama
business community. Plus, when you participate, you receive an
exclusive preview of survey results before they are released to
the general public. Join today!
The University of Alabama
Center for Business and Economic Research
Box 870221
Tuscaloosa, Alabama 35487-0221
Nonprofit Organization
U.S. Postage Paid
Tuscaloosa, AL 35401
Permit No. 16
Address service requested.
THE UNIVERSITY OF
Alabama Business is sponsored in part by
Compass On Business, a partnership between
Compass Bank and The University of Alabama.
ALABAMA
CENTER FOR BUSINESS &
ECONOMIC RESEARCH